Good monsoon forecasts revive car makers' hopes

The prospects of a good monsoon have revived hopes of carmakers in rural markets, where sales had languished following the government’s demonetisation drive last NovemberSharmistha Mukherjee | ET Bureau | May 04, 2017, 09:40 IST

The prospects of a good monsoon have revived hopes of carmakers in rural markets, where sales had languished following the government’s demonetisation drive last November.

India’s largest automaker Maruti Suzuki, which saw rural sales grow by 17% last year, expects the momentum to continue this fiscal as well. Rural sales account for a third of its domestic volumes.

RS Kalsi, executive director (sales & marketing), Maruti Suzuki India, said, “Rural sales are showing an upward trend. In the first quarter of the last financial year, our sales in rural areas had grown by 1%, which increased to 25% by the fourth quarter of FY17. With normal monsoon forecast this year, we expect the momentum to continue.”

Maruti’s sales in rural markets declined by 11% last November in the immediate aftermath of demonetisation. With cash availability improving subsequently, rural sales increased by 18% in December, and 17% for the entire financial year (2016-17).

There are about 4,500 tehsils in India, some of which are pretty sizeable. With almost all manufacturers having established strong reach in urban centres, the focus has veered towards non-metro areas.

Jnaneswar Sen, senior vice-president (marketing and sales), Honda Cars India,said, “For our latest launch, the WR-V, we have seen equal demand coming in from tier-I, II and III towns. Customers in nonmetro areas are evolving. We have been working on extending our reach to meet the requirements in these places. Our sales from tier-III towns have doubled to 25% of total volume (in FY17), from 12% in FY13.”

Honda Cars India currently has 344 facilities spread across 230 cities in the country, and all expansion in recent times has been focused on building a network in tier-III towns and cities. While growth projections for the passenger vehicle segment at 7-9% remain cautiously positive, Toyota expects good rains to spur demand further by evenly spreading sales for the company across the country.

N Raja, director, Toyota Kirloskar Motor, said, “We are seeing a strong demand coming in from Northern India. Last year, rains were lower in some of the southern states such as Karnataka and Tamil Nadu.” Evenly spread monsoons “will evenly distribute demand, give an impetus to rural sales and our overall volumes,” he said.

Korean rival, Hyundai too is working on upping its rural play and is targeting a quarter of its volumes from these markets in 2017. Rural sales accounted for about 23% of domestic volumes from Hyundai Motor India in 2016. The company has sharpened its focus on growing volumes in rural markets and has set up a new department to chalk out marketing strategies for these areas.

Demand as well as per vehicle spend in rural areas is on the upswing and consequently it is not the company’s entry segment car Eon which brings bulk of the rural sales. In the first quarter of 2017, as much as 28% of sales came from the Grand i10, followed by Elite i20 and Creta, which chipped in with 21% each.

ET View: Step up infra investmentsRising automobile sales in rural areas suggests strong growth in expenditure beyond the traditional demand centres. To sustain the trend, what’s required is better after sales services, attractive finance options and products geared for rural areas going forward. In parallel, we need to shore up investment on roads, especially rural and district roads, and state highways, to purposefully improve connectivity and logistics. More wheels would raise productivity and efficiency levels in the entire rural economy.